The xauth package installs into /usr/bin, so look for it there.
$(DROPBEAR_CAT) $(DL_DIR)/$(DROPBEAR_SOURCE) | tar -C $(BUILD_DIR) $(TAR_OPTIONS) -
toolchain/patch-kernel.sh $(DROPBEAR_DIR) package/dropbear/ dropbear\*.patch
$(SED) 's,^/\* #define DROPBEAR_MULTI.*,#define DROPBEAR_MULTI,g' $(DROPBEAR_DIR)/options.h
+ $(SED) 's,^#define XAUTH_COMMAND.*/xauth,#define XAUTH_COMMAND "/usr/bin/xauth,g' $(DROPBEAR_DIR)/options.h
$(CONFIG_UPDATE) $(DROPBEAR_DIR)
touch $@